Indonesian headline inflation eases in May, BI likely to lower interest rates

Indonesia’s headline inflation eased for the third consecutive month. The deceleration was driven by further easing food inflation, while core inflation also edged down. On a year-on-year basis, the consumer price inflation slowed down to 2.19 percent in May from April’s 2.67 percent, countering the rise in administered inflation. Core CPI, which excludes volatile food and government-controlled prices also dropped.

On a month-on-month basis, the headline inflation slowed slightly to 0.07 percent from April’s 0.08 percent. Transport prices rose 0.87 percent, followed by health costs that rose 0.27 percent. Most other major components saw small rises. Food, beverages and tobacco component were the exception, falling 0.32 percent.

“With inflation comfortably within BI’s 2-4% target band and downside risks to growth intensifying, policy rate cuts look to be a matter of time. As things stand, the recent recovery in the IDR and lower volatility should pave the way for the central bank to shift its focus back to supporting the economy. A rate cut later this month looks more likely than not”, stated ANZ in a research report.